The latest Student Housing Annual Report has been published, looking over 2021 trends and taking the pulse of a sector showing remarkable resilience in the face of the pandemic. “The Covid pandemic did not have a damaging effect on the sector, it only confirmed the fundamental: that students still prefer to study on-site,” says BONARD's Head of Rented Residential Julia Momotiuk.
The data, collected from 207 markets and submarkets, shows that three trends shaped the past year for the sector. On the positive side, increased tenant demand is fuelling investor demand, especially from institutional investors. The total volume of transactions in Europe reached €5.8 billion. When investments are also taken into account, the total volume of capital movement exceeded €8.8 billion (including transactions and investments, excluding debt funding, fundraisings and loan provisions).
Momotiuk said: “Looking back at 2021, there were several key trends… observing the performance of the sector, there were high occupancy rates and growing rents. It was confirmed once again that the student housing sector is a resilient and stable asset class, with a counter-cyclical nature. This makes it very attractive for investors and developers. Investment appetite has increased during the pandemic. Students continue to travel to their destinations and appreciate the safe and convenient PBSA environment, services and amenities.”
On the other hand, PBSA stakeholders are reporting the impact of rising inflation on materials and staff costs. Here is an overview of the three trends in more depth.
A positive outlook
BONARD research found that as of September 2021, the average occupancy rate in private PBSA stock in Europe stood at 94%. Overall, very high occupancy levels were seen in the Netherlands (99%), Belgium (99%), Poland (98%), Germany (97%) and France (95%). This is positive news for the sector, confirming that despite the initial difficulties in the first phases of the pandemic in 2020, students still prefer in-person study over online delivery. The sector also saw over 50,000 student beds added in 2021, while 229,098 beds are still in the pipeline.
CEE countries and Southern Europe will keep generating strong investor interest in 2022, while the market in the rest of Europe undergoes consolidation. This year will also see the sector moving more markedly towards asset hybridisation, with assets combining features from different sectors (for example, student accommodation and serviced apartments) to facilitate risk mitigation. Increased competition will also push the sector towards more targeted developments and to invest in soft intelligence among prospective tenants.
Strong investor demand
The data shows that the strong focus on student housing from investors did not slow down from 2019 – it is actually as strong in both continental Europe and the UK. This is especially true for institutional capital seeking to invest in large, established portfolios. But there is a catch – the market is not yet ready to accommodate it.
Julia Momotiuk commented: “There is pent-up demand, especially from institutional capital. We see a challenge: there is not enough opportunity to deploy that capital.”
The total theoretically transactable value of student housing passed €103 billion, as represented by more than 740,000 beds embodied in portfolio assets (i.e., excluding single assets). However, as Momotiuk noted, not all of this stock is actually up for sale.
Compared to Continental Europe, the UK exhibits a slightly higher share of portfolios made up of 10,000+ beds. In Continental Europe, the most common portfolio size ranges between 1,500 and 4,999. Consolidation is expected.
Increasing costs on materials and supply chain challenges have made it more difficult to develop new projects. While some believe that this is an effect of the Covid pandemic, squeezing supply chains and driving up prices everywhere in the world, this is an issue that is front of mind for the sector.
Julia Momotiuk added: “The rising cost of materials and labour for new developments has had a considerable impact on asset capital expenditure. The Covid-19 prevention measures implemented in residences mirrored the additional costs of operating expenditure. Rising inflation across the market outpaced rent increases within the sector.”
The stakeholders’ voice
The report was presented at a dedicated webinar, during which a poll was conducted for the 600 attendees to share their views.
A question gauging sector expectations for 2022 found that 60% of attendees who participated in the poll expect over 90% occupancy for the summer semester of 2022. This confirms the positive outlook for the sector revealed by the report.
When asked about their expectations on the impact of inflation, over half of respondents (55%) said they expect inflation to mean margin erosions that cannot be passed on to rent. Another 38% instead said that while they do expect higher costs, they think these can be passed on fully to rents. Most of the respondents (42%) also expect yields to slightly compress in 2022.